A common question when starting a flower shop is whether an Employer Identification Number (EIN) is needed. Let’s break down what an EIN, when you need one for a flower shop, and how to get one.
What is an EIN?
The EIN is short for Employer Identification Number, sometimes called FEIN or Federal Employer Identification Number.
This number is a unique nine-digit number provided by the Internal Revenue Service (IRS) and is used to identify businesses and certain other entities for tax purposes.
The EIN is essentially a Social Security Number for a business. Instead of using the xxx-xx-xxxx Social Security Number pattern, EINs use an xx-xxxxxxx pattern.
When Does a Flower Shop Need an EIN?
There are various reasons to get an EIN, but they are not always required for a flower shop. Common reasons to get one may include:
Forming a business entity – Flower shops that form as a partnership, corporation, or multi-member LLCs will need to obtain an EIN. The reason that sole proprietorships may not need is the entity and the individual are the same legally and are able to use the owner’s Social Security Number.
Hiring employees – The only time that a flower shop that operates as a sole proprietorship or a single-member LLC will need an EIN is if there are employees. The EIN is then used to pay payroll taxes.
Tax election – An LLC has the flexibility to be taxed like a sole proprietorship, partnership, C-corporation, or S-corporation. A single-member LLC that elects to be taxed like a C-corporation or S-corporation will need to obtain an EIN.
Retirement plans – If you open a Keogh or solo 401(k) retirement plan, an EIN will be needed in order to facilitate the federal tax treatment of these plans.
When an EIN is not used, the LLC is considered to be a “disregarded entity” because the income and expenses of the business are reported on the sole owner’s personal income tax returns with the Schedule C Form (Profit or Loss from Business).
Even if your flower shop isn’t required to get an EIN, you may still want to get one anyway. The primary reason to do so is that using an EIN may help reduce identity theft, as your SSN isn’t being used for business purposes. In particular, if you plan to use independent contractors, 1099’s will be issued at the end of the year and your SSN will be on each contractor’s form, which isn’t ideal.
Banking and finance – In many cases, banks and credit unions require a valid EIN to open a bank account for any type of business, an estate, or non-grantor trusts. Having an EIN may also be helpful for a business seeking to obtain financing or working capital.
What is the EIN Used For?
The EIN has several uses, including:
- Filing business tax returns
- Submitting Payroll Taxes (Social Security and Medicare)
- Sending year-end W-2 and 1099 reports
- Open business bank accounts (the owner’s SSN can be used for sole proprietorship and single-member LLCs)
- Building credit for the business by obtaining business loans and credit cards
Is the EIN the Same as a Tax ID?
The EIN is sometimes referred to as a Tax ID. However, sometimes people will refer to this number as a sales tax number, which is an entirely different thing. If your flower shop is in a state where there is a state sales tax, you will need to register with your Department of Revenue, Department of Taxation, or whatever the state agency responsible for handling sales taxes.
How Much Does an EIN Cost?
There is no cost to get an EIN when applying directly through the Internal Revenue Service (IRS). It’s straightforward to do and just takes a few minutes.
How Do I Get a FEIN Number?
There are a few different ways to apply for an EIN. The fastest way (it literally takes less than 10 minutes to get the number) is to apply online at the IRS website. If preferred, you can also mail or fax the SS-4 Form, or even call the IRS at 267-941-1099.
What Information is Needed to Obtain an EIN?
When you apply for an EIN, you will need to have certain information available at the time of the application. That information includes:
- Name of the business
- Name and SSN of the responsible party filing the EIN application
- Type of business entity
- Reason for applying
- Date business started
- What the business does